The Right KPIs Make You a More Effective Leader

I recent­ly had a Ground­hog Day con­ver­sa­tion (for about the 100^th time) about Key Per­for­mance Indi­ca­tors (KPIs).

Peo­ple think that they need to set up a dash­board as a solu­tion to KPIs. But most of the time, they end up with an auto­mat­ed sys­tem that doesn’t mea­sure the right things. They are full of use­less or too much infor­ma­tion, not pre­sent­ed in a way that cre­ates a sim­ple sto­ry that enables man­agers to make bet­ter deci­sions. And they are not put into reg­u­lar report­ing so that man­agers or lead­ers can make bet­ter deci­sions, on an hourly, dai­ly or week­ly basis.

Many com­pa­nies don’t have any at all, espe­cial­ly small­er companies.

What is a KPI?

Since the term ​“KPI” is used in dif­fer­ent ways, let’s define the term. In my world, KPIs are mea­sures of the health and per­for­mance of a busi­ness over­all – or a depart­ment, a team or indi­vid­ual team member.

There are two dif­fer­ent types:

• Oper­a­tional health mea­sures – like the per­cent­age of uptime or per­cent­age of rejec­tions for qual­i­ty issues in a man­u­fac­tur­ing facil­i­ty. Some call these lead­ing indicators.
• Finan­cial per­for­mance mea­sures – show how dif­fer­ent pieces of the busi­ness are per­form­ing on a month­ly, quar­ter­ly or annu­al basis, based on mea­sures or ratios of the income state­ment or bal­ance sheet. For exam­ple, these can be relat­ed to the account­ing team’s finan­cial state­ments or labour costs as a per­cent­age of sales for a man­u­fac­tur­ing facil­i­ty, or the cost of pro­duc­tion per unit.

While there are many dif­fer­ent KPI mod­els and frame­works, ideally:

• The CEO and exec­u­tive team have a set of KPIs that indi­cate the health of the entire busi­ness, and how effec­tive­ly they are exe­cut­ing on their long-term strat­e­gy. For many com­pa­nies we work with, this would be the hand­ful of KPIs that mea­sure the health of their flywheel
• Each depart­ment has KPIs to know when they’re win­ning and losing
• Each team mem­ber has two or three KPIs.

An Ide­al State

The ide­al state is that I could sit down with your exec­u­tive team and, by review­ing your KPIs, get a sense of the over­all health of the whole enter­prise – and each depart­ment or team – in five min­utes. I’d know what to cel­e­brate and where to dig in to ask more questions.

The Chal­lenge

• Whether it’s week­ly or month­ly, do you have the right KPIs to know the health of your busi­ness over­all? Of each department?
• If so, con­grat­u­la­tions! If not, which KPIs do you need to define and get reg­u­lar report­ing on to help you and your team under­stand and improve the per­for­mance of your busi­ness most?

Addi­tion­al blogs

• Do You Have the Right Ele­ments to Hold Your Team Accountable?
• Mas­ter­ing & Pow­er­ing Up Your Com­pa­ny Flywheel
• Key Per­for­mance Indi­ca­tors – What’s Most Important?

Old Pod­casts

• Jim Collins’ Fly­wheel Concept
• Five Things That Lead to a Bad Strate­gic Plan